Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[JRP3]

And I (and a few others) put it out there months ago that we’d not be surprised to see S discontinued in the not too distant future, having served its intended purpose.

Part of it's purpose is to be a profitable high margin vehicle to allow the company to continue to exist, no reason to assume that purpose has ended.

 

[Thekiwi]

On my model the average optioned 75D model S made around $20k gross profit in Q4. The average optioned 100D model S made around $36k gross profit (ex P option).
75D models were c.55% of S&X volume in 2018.
So 55K 75D sales make the same gross profit as 31k 100D sales. ($20k*55k/$36k).

For the c.55k 75D S&X customers in 2018, if 31k trade up to 100D after the 75D is removed, then total S&X gross profit will be flat yoy. That is, 76K 100D sales will make the same gross profit as 100k 75D and 100D sales did in 2018. The $2k price cut per car will then reduce annual gross profit by c.$150m. This all assumes no changes in COGs per car. Reducing to one shift at this level of production should lead to lower staff costs per car.

But it seems very difficult to persuade 31k/55k = 56% of customers to trade up $18k from 75D to 100D without a price cut, just simply by removing the cheaper option.

It should therefore have been immediately obvious to anybody paying any attention that S&X production right now should be down significantly, mostly because of actions deliberately taken by Tesla. The question now, as before, is what does Tesla do next.

If Tesla does nothing to change the S/X pricing or refresh the lineup from here, S&X gross profit should fall significantly in 2019. However I think it very unlikely Tesla does nothing. Some demand impact post US tariff reduction should have been anticipated for years, while the demand impact from 75D removal was Tesla's own decision, so must somehow contribute to higher future profits. I see very low chance that 75D was removed and cash flow turned off for no reason without a larger plan.

Rather than refresh the options, it is possible for Tesla to reduce 100D price to increase demand. There will be some balance where this maximises profit. However if this was the plan I don’t see why the price wasn’t cut immediately. I think it more likely we get new battery variants, whether or not that includes a move to GF1 cells. Particularly given that Elon mentioned in future S&X would be named “Long Range” etc rather than by battery size, which doesn’t make much sense if there is only one option.

My assumption has been that Tesla would have 3-4 weeks of reduced production after removing the 75D as it prepares to launch a refreshed set of options. This is completely consistent with the news from CNBC today. Note that CNBC mostly refers to S&X employees moving to 3 or moving to day shift and only notes 6 maintenance techs actually fired. This suggests staff could be redeployed to the night shift at fairly short notice if Tesla launches new options and ramps up demand again.

So overall the news from CNBC doesn’t change my view and I don’t attribute any weight to a line worker telling CNBC no refresh is coming – I don’t see why he would have any knowledge of Tesla’s extremely sensitive product refresh timeline. If anything, maybe now I think it may be a few weeks or months longer than I previously expected before new battery options are launched and S/X production ramped back up.

Good post.

One alternative is they simply want to split the 75D market to either the higher margin 100 SKU, or the high end model 3 performance variants. Either model is more higher margin than the 75D correct? If that all washed out to the same or more gross profit from vehicles sold - then this is a non-issue from a net income perspective. Even if it is only the same amount of total profit (from those buying 100D or P3 instead), the higher amount of M3 units would make the entire model 3 line conceivably more profitable as it scales higher, as well as bringing more efficiencies to a simplified S/X lineup.

(Although I would wonder if S/X dropping shipments by a third - hypothetically - woud have some negative margin consequences on the S/X line that offsets the efficiency gained? Maybe it’s a wash there)

 

[anthonyj]

Good post.

One alternative is they simply want to split the 75D market to either the higher margin 100 SKU, or the high end model 3 performance variants. Either model is more higher margin than the 75D correct? If that all washed out to the same or more gross profit from vehicles sold - then this is a non-issue from a net income perspective. Even if it is only the same amount of total profit (from those buying 100D or P3 instead), the higher amount of M3 units would make the entire model 3 line conceivably more profitable as it scales higher, as well as bringing more efficiencies to a simplified S/X lineup.

(Although I would wonder if S/X dropping shipments by a third - hypothetically - woud have some negative margin consequences on the S/X line that offsets the efficiency gained? Maybe it’s a wash there)

Musk stated on Twitter that S/X would follow the same naming as the 3. Standard/LR/Performance. Expecting to learn more on the 30th

 

[ReflexFunds]

Good post.

One alternative is they simply want to split the 75D market to either the higher margin 100 SKU, or the high end model 3 performance variants. Either model is more higher margin than the 75D correct? If that all washed out to the same or more gross profit from vehicles sold - then this is a non-issue from a net income perspective. Even if it is only the same amount of total profit (from those buying 100D or P3 instead), the higher amount of M3 units would make the entire model 3 line conceivably more profitable as it scales higher, as well as bringing more efficiencies to a simplified S/X lineup.

(Although I would wonder if S/X dropping shipments by a third - hypothetically - would have some negative margin consequences on the S/X line that offsets the efficiency gained? Maybe it’s a wash there)

Yes definitely there will also be some S 75D customers trading down to a Model 3 AWD P (which has slightly higher gross profit than 75D currently). But say 20% of S75Ds trade down to a 3 P and 50% trade up to a S 100D, then what happens for X 75D customers? Many more are likely to be lost because they don't yet have a Y P to trade down to. It doesn't make sense to take away all lower priced options for CUV/SUV customers at this stage.

On costs, if they kept both shifts, then lower S&X volume would most likely lead to higher staff costs per car. However if they maintain one shift, it is possible for them to produce less but still with less staff per car and lower costs. Depreciation would normally increase per car on reduced volume, but in S&X case much of the equipment may be close to fully depreciated and other depreciation may be shared with 3.

 

[thait84]

VICKI SALVADOR‏ @VickiSalvador 15m15 minutes ago
Replying to @TriTexan @UpUpUp24223983
And by the way I was not retained And I have been advised by my attorney not to discuss the terms of my separation from Tesla until this case settles

That's really too bad.

 

[AudubonB]

Radars are expensive, so this is a natural step of vertical integration.

Also, I'm wondering whether they are going to use the second radar for radar interferometry, which can improve the resolution of radars immensely.

Another possibility is that the second radar will use a different frequency, which should allow fewer artifacts and also two image stereoscopic radar vision in addition to pulse delay distance measurement.

I've had to be gone all day, so - if any are due - my apologies if I'm performing the horror of asking a question that has been answered a half-dozen times in the intervening hours.

But: As amply shown by the up-thread transcript of Messrs Musk & Co on Oct 23,

the only thing that needs to change between a car that's produced today and a car, let's say, produced in the two second quarter of next year is swapping out the Autopilot computer.

And so: how on earth does this reconcile with the possibility of a second radar? I really am confounded by this.

 

[mongo]

I've had to be gone all day, so - if any are due - my apologies if I'm performing the horror of asking a question that has been answered a half-dozen times in the intervening hours.

But: As amply shown by the up-thread transcript of Messrs Musk & Co on Oct 23,

And so: how on earth does this reconcile with the possibility of a second radar? I really am confounded by this.

It's a second CAN bus connection to the radar, not an entire second unit . (Per poster upthread or other thread think it was @MP3Mike )

 

[Alphacrux]

Musk stated on Twitter that S/X would follow the same naming as the 3. Standard/LR/Performance. Expecting to learn more on the 30th

Predicting current 100d becomes the standard with some drop in price. Long range = 410-415 miles. Performance 385 miles. That is, if there’s any update at all.

 

[anthonyj]

Predicting current 100d becomes the standard with some drop in price. Long range = 410-415 miles. Performance 385 miles.

That would be awesome. I think we will see long range at 420 miles. Not even joking

 

[dc_h]

I think it should be confusing to us all, at least for now. Laying off SX lines staff and elimination of 60% of SX production requires some next step. Are they rebuilding the line for a new SX and combining the production lines? Are they making space for model 3 production? Their needs to be some plan, cause you don’t cut the 75 SX when they are 60% of sales just to drive some percentage of those users to a higher margin model 3.

 

[Beltsbear]

Predicting current 100d becomes the standard with some drop in price. Long range = 410-415 miles. Performance 385 miles.

Tesla would be smart to drop some cells out of the 100 kWh battery so it becomes a 95 kWh as they lower the price. Then the recent 100 kWh buyers can't get as upset about the price drop. Basically making it not comparable. They could drop the cells from the front so that there is a slight gain in safety in very high speed front impacts.

 

[Krugerrand]

Part of it's purpose is to be a profitable high margin vehicle to allow the company to continue to exist, no reason to assume that purpose has ended.

Meh. Soon they won’t need that profit nor will they have it if there isn’t a major redesign that people have been going on about for over a year and a half. Some here have already called for doom of the car because it no longer contains the best Tesla technology.

At worse, my WAG (which I rarely do) isn’t anymore out there than what’s been flogged on this forum for years. And just today confirmed by a former employee-granted might be talking out his ear, but it’s a strange thing to say.

I know what Elon just said and I still won’t be surprised if he changes his mind at some point.

Mostly I was just countering the ridiculous portrayal of *us* by the poster that Karen was. I don’t care one way or another what they do with the S because they’ll just do what they think is best for the company and mission long term and I’m 100% ok with that.

 

[phil0909]

Can't ignore the VINs posted yesterday (even bloomberg trending up on limited data). What I hear is the sound of the 1st Stage throttling back before kicking in 2nd Stage for orbit - all systems GO.

I bet Goldman Sachs is buying right now... So predictable! I might even buy more today after getting my 50 shares at $293 early this morning.

Always buy into the falling knife with Tesla, increase quantities the lower it goes, that's how you catch it every time. IMO, it will be $350 within 30 days, and for sure in the next year. Don't miss this sale, might be the last time below 300.

And any time you lose at poker, double your bet on the next hand.

All you have to do is wait until you win one. Can't miss!

 

[omarsultan]

Tesla has had a machine shop in Lanthrop since 2014.

It is now opening a huge new facility. Probably parts distribution.

They also do their plastics fab in Lathrop, so none of these job postings are surprising.

 

[trils0n]

Wondering if this is the beginnings of phasing out the S and X, perhaps to make room for the Y at Fremont. Earnings call will be interesting, looking forward to answers to some of this speculation.

Clearly, eliminating the 75 S and X plus an entire production shift will reduce sales by a significant amount. Reports that Tesla doesn't have anyone working on refreshes are also supportive of the idea they might be phased out (despite Musk, necessarily, claiming otherwise, he might have easily changed his mind since then, as he often does)

 

[mekberg]

Rumors I've found:
1 -- glass roof without anti-heat coating, with cloth headliner. Sounds crazy but apparently the anti-heat coating is really expensive?
2 -- new battery pack assembly design (Elon specifically mentioned this) which was supposed to come online in late Jan (so expect late Feb) which was supposed to be cheaper and faster to assemble and lighter. No recent news on this, but I doubt it's been abandoned.

It is quite possible I am wrong, but I thought the base 3 was going to have a solid metal roof. Surely that would be cheaper?

 

[SOULPEDL]

Next 50 set for $277. Will be amazed if I get it!

Only concern is "Short-Term" if they push even harder as Tesla appears to approach a BEV monopoly world-wide. Expecting this fight throughout the year, so I have also placed some sells on the way up.

 

[RobStark]

Reports that Tesla doesn't have anyone working on refreshes are also supportive of the idea they might be phased out (despite Musk, necessarily, claiming otherwise, he might have easily changed his mind since then, as he often does)

1) Blue collar guy working on the S/X line doesn't know anything about C-Suite plans.

2) Just as easily Musk can decide to test run Model S/X through Alien Dreadnought 1.0 and triple production with half as many workers and introducing Model S coupe/convertible/shooting brake like it was originally conceived.

3) Then Alien Dreadnought 1.1 is ready to go for Model Y and Model 3 2.0

 

[gringotuanis]

It is possible that Tesla are ramping up hiring admin and management in its China HQ which would come under SG&A. The GF3 investment should all be capex as you say though so won't impact P&L.

Exactly ppl just keep saying this is why Elon guided lower for Q1 and I don't want them to assume it's for GF3.

 

[reddit_tl]

New poster here! Model S and 3 owner, stock owner since 2014(actually bought my first bit of stock when test driving the S and thought, this is going to be big!).

So about Q1 2019 not being as profitable. Considering the latest news of the removal of the 75k and the reduced production hours..….my hunch is the reason profits will be lower is because they plan on introducing the S/X refresh at the beginning of April(or maybe even at the Model Y reveal in March......reveal the refreshes as "One more thing" and say starting to take orders!"). I would not be surprised to hear Tesla say that that S/X production gets shut down for an extended time during Feb/early March(1-2 weeks, maybe longer). If that were to happen, you would definitely see profits take a big hit for Q1

It'll be interesting to see what the profit number is for Q4 because if it's only slightly less than Q3(like say 250-275 million instead of 300 million), then I think the refresh and production shut down to get ready for that is guaranteed for Q1. Seeing how they're already doing shipments overseas and given the vin registrations so far this quarter(very lopsided to AWD over Mid-Range), I just don't see how profits would drop to barely profitable unless the S/X lines were being shut down for a extended period. I get that there will be a larger number of vehicles in transit due to overseas, but I don't see it being so large that there would be that big of a difference in profits from Q3/4 to Q1

great minds think alike, man. see my previous posts. exactly the same logic.

All the talk about demand issue just cannot find support from history while this scenario is much more plausible IMO.